Vishal Mega Mart Limited (VMM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '26 Conference Call of Vishal Mega Mart Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Agarwal from Strategic Growth Advisors. Thank you, and over to you.

Thank you. Hi, good afternoon, everyone, and thank you for joining us on Vishal Mega Mart Limited Q2 FY '26 earnings conference call. We have with us Mr. Gunender Kapur, MD and CEO; and Mr. Amit Gupta, CFO. I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on the company's website and stock exchanges. We will begin the call with opening remarks from management, following which we will have the forum open for question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and the disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Gunender Kapur, MD and CEO, to give his opening remarks. Thank you, and over to you, sir.

Well, thank you very much, Rahul. Very good afternoon, ladies and gentlemen, and a very warm welcome to this call. What I propose to do is to run you through the quarter 2 and first half presentation very quickly, so that we can maximize time for questions. So firstly, I'll cover the quarter 2 performance and then move on to the first half highlights of the performance. In quarter 2, we did a revenue of INR 2,981 crores. This was a growth of 22.4% over last year. Our adjusted same-store sales growth was 12.8%. Now one of the factors which helped the September quarter performance, the Q2 performance was the fact that we got the benefit of Durga Puja festival, which is, as you know, a very popular festival in Eastern India. And also, to a lesser extent, the benefit of Chhath Puja, which is, again, a popular festival in Bihar, East UP, et cetera. So we got these benefits in September quarter this year, whilst the numbers were reported in December quarter in the last year. So therefore, that incremental revenue, we got it in September quarter this year, and we will not get it in December quarter this year. Whereas last year, there was no benefit of these festivals in September quarter and all the benefit was reported in December quarter. Moving on to EBITDA. The EBITDA for the quarter was INR 395 crores, which is a 30.5% growth over last year. And the EBITDA margin improved to 13.2% vis-à-vis 12.4% last year. PAT was INR 152 crores, which is a 46.5% growth over last year. And the PAT margin this quarter was 5.1%. In the corresponding quarter last year, it was 4.3%. Here, we conclude the quarter 2 performance highlights. And now I will move on to the first half performance highlights. In the first half of FY '26, our revenue from operations was INR 6,122 crores. This was a growth of 12.6% over last year, and our adjusted same-store sales growth was 12.1%.

Our growth was 21.6%.

Sorry. Thanks, Amit. We had a growth of 21.6% and the same-store sales growth was 12.1%. So in the first half, INR 6,122 crores revenue, a growth of 21.6% over last year and adjusted same-store sales growth of 12.1%. The EBITDA in first half was INR 854 crores, which is a 27.8% growth over last year and an EBITDA margin of 13.9% in first half as against 13.3% last year. The PAT in first half was INR 358 crores, which is a 41% growth over last year. And the PAT margin in the first half of this year was 5.9% vis-a-vis 5% last year. We maintained our accelerated new store opening momentum and opened 28 new stores over this quarter. And overall, for the first half, we opened 51 new stores. This takes the total store count to 742 as on September 25, and we have now presence in 493 cities in India. We added 19 new cities in the second quarter, in line with our agenda of deeper penetration into India and coverage of the white spaces, which are still there. Our trading area stood at 1.28 crore square feet. As you know, Own brands are a very important part of our strategy. The revenue in the first half of the year from Own brands was 74.7%, which is a 185 bps improvement Y-o-Y. The category mix remained essentially the same. Our quick commerce expanded to 695 stores across 460 cities in the country, and the registered users on quick commerce have increased to 1.08 crore people. Finally, to conclude, I would just add that we believe the government's initiative of GST rate rationalization is a very positive step towards stimulating consumption. And Vishal remains totally committed to pass these benefits to all our customers to enable long-term inclusive growth for all the stakeholders. Well, with this, I would like to thank you once again, and I would request the moderator to open the floor for questions.

[Operator Instructions] We take our first question from the line of Vivek M. from Jefferies.

My first question is on the SSS numbers. Now obviously, we have data only since the time you got listed and period around that, which has been double digit. I know this question was asked to you last quarter also. But instead of, let's say, second half F '26, if you take a, let's say, 2-, 3-year view, where do you think this number, let's say, settles at, let's say, in 2 years from now on the SSS side?

So Vivek, firstly, thank you very much for your question, and it's great to speak to you again. But as you know, we do not give any forward-looking guidance at all. All I would say at this point in time, we are optimistic about the future because there is a very happy confluence of three factors, which is going to play out. One is, of course, the GST rationalization, which I spoke about. The second is, as you know, the income tax rates for the middle income group customers were rationalized on 1st of April. And last but not the least, while I'm not an agri expert, but from what I've read or heard, since the rainfall this -- for kharif this year has been very good and somewhat extended, as you know, we should expect a good crop. So at this reason -- at this point in time, there is really no reason for us to be not optimistic about the future. Of course, any macro events, which are based more on global rather than local events cannot be totally ruled out. So yes, with that caveat, I would say that we are optimistic about the period that you spoke about.

I see. Okay. And second, on the GST bit, GK, so I understand the part from a retailer standpoint. But what happens on the Own -- so what have you done on the Own label side, number one? And number two, the low GST will make you more competitive versus, let's say, the regional and the local brands in each of these markets? And the second part of my point, do you concur with that? So both sides, what have you done with the lower GST in the Own labels and the second part?

So firstly, Vivek, on GST on third-party brands and on Own brands is all entirely being passed on to customers to the extent of the GST reduction. So we are not differentiating between the two, 100% of the rationalization benefits are being passed on. On your second consumption, the view that I can share with you with certainty is that it is likely to have a positive impact on consumption. Now how specifically will it play out vis-a-vis smaller regional players? I don't have a view right now because I don't have really the granular data for each one of them to see. My assumption is that they would all be passing on the GST benefits to the consumers and customers. If that hypothesis is true, then the relative price parity will remain essentially the same. But [indiscernible] have positive impact, that I can see.

I see. Okay. And last question, if I may, which is basically on the first half adjusted EBITDA margins are almost about 9.5%, and I'm talking about previous -- pre-ESOP charge. What is your outlook, let's say, over the next 12, 18 months on pre-Ind AS margins? At what level you want to cap it to?

Okay. So Vivek, I'll give a holistic answer to this question. If you recall, right from the IPO time, we've been saying that the game plan for this business is to maintain the gross margins. And that essentially continues to be our opinion and view. So I do not either commit to or in any which way forecast that the margin improvements that we've seen thus far will necessarily continue in the future. And I hope that, Vivek, answers your question. We are committed to ensuring that we -- as we grow and our growth is largely volume growth, we get better and better buying efficiencies. And the margins which may come because of better buying efficiencies, we have a plan to reinvest that either in product quality or in better pricing.

We'll take our next question from the line of Gaurav Jogani from JM Financial.

Congratulations on a great set of numbers. Sir, you did highlight that Q2 was partially benefited because of an early festive of Durga Puja and Chhath, but we also gathered that there was some regional disturbances in the Assam region. And even though Assam has a very decent contribution to your overall growth, so would that also had some offsetting negative impact during the quarter?

Absolutely correct. So we had two things in the quarter, which were significant. One is that we had the somewhat or quite significantly extended monsoon this year. And they did cause some disruption, which would inevitably impact the retail businesses. So that was one factor. The second, as you said, because of the very, very unfortunate passing away of the favorite singer for all of us, Zubeen Garg, there was a 5-day mourning period in Assam where everything was shut, and that came bang in the middle of the peak Durga Puja season. So yes, you're absolutely right. That did have an impact on the revenue.

Would you like to quantify the impact of this, especially the Assam thing, if any?

Very, very difficult to quantify that specifically. I can say that it was significant in Assam. You see because one cannot assume that the revenue that we lost in those 5 days is all a net loss because in several cases, the customers would go and in the subsequent week buy all that they were supposed to buy or that they wanted to buy. So unless one engages with a very, very large cross-section of customers to figure out if there was any reduction in their purchases because of that 5-day shutdown, very difficult to speculate on that.

Sure. And sir, my second and last question is with regards to the store expansion. I mean store expansion is as per what you have been guiding. But we have seen the expansion is largely in the southern market because out of the 20-odd stores opened during the quarter, a large part of it was opened in the southern market. So any specific focus, and we are also seeing a commensurate increase in the -- sorry, decline in the average square footage of the stores as well. So anything that you would like to highlight here?

Certainly. So firstly, I would say that your observation is correct. We've opened significant number of stores in the southern region. Firstly, as I mentioned in the last quarter call, we are getting very good response from Kerala, which is one of the states that was mentioned. And of our total store openings...

28 for the quarter, four came from Kerala...

Four came from Kerala, three came from Karnataka, which is an existing market for us. Four came from Telangana and two came from Andhra Pradesh. So the total was 15 stores. But the rest of the stores were opened in the North and some in the West. As you know, we are also piloting Gujarat and Maharashtra. So there were store openings in Gujarat in the quarter, and that will continue to happen. So your observation is absolutely right. But in second quarter, 15 out of 28 stores opened in South, 13 opened in the rest of the country as well.

I'm sorry to interrupt. I request you to join back the queue, please, as we have other participants waiting for their turn. We'll take our next question from the line of Devanshu Bansal from Emkay Global.

Congratulations on the strong performance. Sir, I wanted to check there is a GST reduction that has happened, and you have indicated that consumption should see a pickup. So you did indicate that your average bill size pre this reduction was about INR 800. So I wanted to check, are we sort of sustaining at that level or because of this GST reduction, there is some level of reduction that has happened. The intent of asking this question is whether we have been able to sort of impress consumers to sort of spend more at the stores or consumers are sort of spending or taking the benefit of GST reduction.

So what I would say is, firstly, it's too early to -- with data come to that conclusion just as yet because as you know, there was a transition period of 3, 4 weeks before everything settled. But my assumption at this moment is that it would not impact our average bill value at all because I'm also quite optimistic that this will lead to an increase in overall consumption. So we anticipate one of the two scenarios and most likely both will play out with different customers. One is folks who are going to buy more things from the store. So earlier if they were buying 8 items per bill, they could buy 9, for example. The second thing also which will inevitably happen is that folks who are desirous of buying a more aspirational higher price point product may find that it's become somewhat more affordable right now. So as a combination of the two, it is not our hypothesis that the average bill value will come down. But we will have in the next three months enough data to answer that with specificity.

Understand. And over -- on the portfolio level, sir, what is the GST reduction? Any quantifiable number that you can give us?

So it's -- as you know, it's very different for different categories. In apparel, our -- only 1% of our revenue is impacted because, as you know, all products which are more than INR 1,000 earlier were paying higher GST that has been reduced to INR 2,500. So our products which are between INR 1,000 and INR 2,500, which is a very small part of our revenue, the GST reduced from 5% -- from 12% to 5%. That number is significantly higher for general merchandise, where almost 34% of our revenue is impacted by -- positively impacted by GST reduction. And this includes categories like footwear, household, appliances, sports and toys, where the GST has moved to 5% from a range of 12% to 18%. And lastly, the largest impact would be on FMCG, where 50% of our FMCG revenue would be positively impacted by the GST reduction. So yes, as you can see, it's 1% in apparel, but 50% in FMCG. And in general merchandise, it's about 34% of our revenue.

Understood. Lastly, I wanted to understand, there are two new additions to your Board. There is some reconstitution that has happened. So if you can highlight what is the strategic intent behind this? That's my last question.

So we have -- in the period -- slightly longer period, we've had three wonderful additions to our Board. As you know, Neha Bansal is our Chairperson. And we've had the privilege of having Soumya also as our Independent Director. And I think as we announced yesterday with the results, we also have now Mr. Yogesh Yadav, who is another very welcome addition as an Independent Director to our Board.

I'm Sorry to interrupt. May I request you to join back the queue, please. [Operator Instructions] Next question is from the line of Garima Mishra from Kotak Securities.

First question, GK, you've mentioned in the press release that a large proportion of your stores offer the quick commerce service, right? Can you give some color on revenue contribution from e-commerce, quick commerce to your overall revenue pie?

Well, I can tell you the range because, as you know, all the stores are still not covered, and they are getting added every month. So the period for which they have been operational vary from a few weeks to more than a year. But the range falls almost between at the lower extreme 1.5% or thereabouts percent of our revenue and at the higher end, 9% plus of our revenue. So that's the range in which we are operating. And once we are fully rolled out and matured in all the stores, which have all been recently added, we would have a better overall number for this. But yes, I mean, that's the range. And I would say 9% plus in such a short period is a pleasant surprise for us, but we are indeed getting even that much in some parts of the country. I wouldn't say majority of the country, but in a significant part of our revenue.

Got it. And just to follow up on this one. So these revenues are attributable to individual stores and would thus be forming a part of the LFL calculation, right?

Absolutely. You're absolutely right. These are attributed to the stores and therefore, do part of the total revenue numbers that we are reporting. Can I just make one clarification on the prior question, please, because I understood the question as independent directors. If I were to extend that to directors who are there from my investor side, there is the addition of Mr. Vageesh Gupta from Partners Group to the Board also. So the three folks I spoke about earlier were the independent directors. And Vageesh is -- represents Partners Group on the Board. Sorry, that's the comprehensive answer to the earlier question.

Got it. And I have one more question. Could you talk about any specific supply chain investments that the business might need? We've seen once in the past, there was a little bit of onetime investment that you needed to build up supply chain. Is there anything in the offering in the next couple of years that we should be looking out for?

Absolutely. There will be further investments in the supply chain. I think I had mentioned in one of the earlier calls that we are making a 600,000 square feet warehouse in Haryana, close to Gurgaon. And this would be a fully automated warehouse to ensure that we are not running out of warehousing capacity for our future growth. So as that gets fully implemented, we would be putting up similar warehouses. But depending on the revenue in that particular zone, maybe of somewhat different sizes in a very strategic fashion around the country.

Garima, I request you to join the queue, please. I request you to join back the queue, please, Garima, as there are other parts waiting for their turn. We'll take our next question from the line of Nihal Mahesh Jham from HSBC.

I have two questions. The first is, while you mentioned the adjusted SSG looking at some store closures and cannibalization, just if you could quantify the impact of the shift in festival of Chhath as well as Durga Puja into this quarter. Had that not changed into the Q2 quarter, what could have been the ideal normal SSG?

See, I'll give you my best estimate. And it will be an approximate number because when the festival dates change, at this time of the year, the seasonality impact also changes. So for example, if Durga Puja and Chhath are later than last year, then the winter sales also come into play. Likewise, the other way around also. So it is very, very difficult to be that specific. But if you ask me for my best estimate, I would say it is probably 150 to 200 basis points.

That is helpful, GK. The second question was on specifically the INR 99 price point in apparel. Would it be fair to say that at least anecdotally looking at a lot of the other retailers that operate in your area that you sort of have an exclusivity or very large market share in that price point, first, if that is a correct influence. And given recently, if you look at the fact that there has been an increase in aggression from the likes of Meesho, where you do find a lot of listings less than INR 99 also. So is -- how do we plan to differentiate ourselves versus, say, cheaper pricing of INR 50, INR 60? Is it that the quality improvement that you're speaking of, is more at the starting price point in the apparel, or will it be across the board? These two parts, and I'll be done.

So firstly, it will be across the board. Secondly, I would like to just add one piece of information to complete the picture are the most fashionable highest price points are growing the fastest. And if you were to rank them, the mid-price points -- middle price points are growing the second fastest, both significantly faster than our entry price point. These are the price points where we've completely enhanced the fashionability and quality. And that agenda, you will see unfolding further in spring/summer '26 with, for example, things like higher cotton content, et cetera, in our apparel clothing even at the lower price points. So yes, that's correct. Equally, it is correct that we have price points lower than INR 99 already in the business. And these are largely in kids and infants and other kids clothing. So those price points which are less than the INR 99 already exist with us. And yes, we will continue to ensure that; a, on quality; and secondly, on pricing, we are very competitive.

Just one follow-up there that in the entry price point, if you see, certain online competitors getting very aggressive with pricing and quality, then what approach do we plan to take? Or is it that we are confident with the current approach at this point in time?

So we have certain principles which we've been articulating. And I think I can say that those would be carried forward in the future also. On the opening price point, we will be the most competitive in the country. Now I would clarify vis-a-vis all the organized sector retail because the mom-and-pop stores, it's impossible for us to monitor anything because there are so many, as you probably know, millions. So in the organized retail, we will be the most competitive in terms of opening price point, which can be easily compared across retail. Beyond that, I would further say that I remain confident that if the inflation situation remains as benign as it is right now with that caveat, we have no plans for price increases. But we will continue to upgrade our merchandise and keep introducing new and more aspirational products beyond our current price range on the higher side.

Next question is from the line of Sagar Tanna from Alchemie Ventures.

At the start of the conversation, you mentioned about consumption likely to pick up, thanks to GST income tax rates, and you also mentioned about upgrading our inventory to aspirational. Is it fair to assume that you see demand consumption coming back strongly over the next few years compared to the last few years? And there would be some kind of up trading versus down trading, which may have happened? And if yes, then how will it impact our private label business?

Okay. So the -- firstly, I would like to say that the price benefit that our private brands offer over the third-party brands are very significant. They could be in the range of 20% to 45%, 50%, obviously, different for different private brands. The GST impact is relatively much smaller, the GST benefit. So I'm not certain whether the competitiveness of our private brands will get impacted at all. Secondly, as I mentioned in one of my earlier answers, we have even on the private brands passed on the GST benefits. So I can assure you that there is likely to be no change in the competitiveness of our private brands vis-a-vis the third-party brands because of the impact of GST or increased consumption. In fact, I would believe that given their immensely higher affordability, our private brands will participate very strongly if the consumption were to go up in that upgradation process.

Got it. And sir, any changes with respect to our CapEx plans considering that consumption is likely to become -- be more stronger than in the last few years?

So I will just reconfirm that we are going to be investing in supply chain, as I mentioned in one of the earlier answers. Secondly, I reconfirm that our agenda will remain accelerated store openings. Thirdly, our agenda will remain to cover the white spaces which we still have. For example, I spoke about Kerala, I spoke about Gujarat, I spoke about Maharashtra. And there is another state where we are not present at the moment, which is Tamil Nadu. And last but not the least, as you know, we are expanding our omnichannel presence, and we will continue to invest behind that. And yes, I had also mentioned in one of the earlier calls that we are piloting a format for the smaller towns, which are ballpark 50,000 population. That pilot is also progressing well, and we will scale up that as well. So lastly, I would just like to assure you that we have enough cash on our balance sheet to fund all these plans.